PRESS RELEASE

State
of Iowa

Citizens
Aide/Ombudsman

September
1, 1999

RE:
Investigative Report 98-3

State
Insurance Division

DES MOINES  The State Insurance Division was
unreasonably lax in overseeing a Clinton funeral homes efforts to correct problems
involving about 1,500 customers, according to a report released today by Citizens
Aide/Ombudsman Bill Angrick.

Those customers stood to lose about $3.5 million when
Clinton Memorial Park Cemetery & Funeral Home, Inc., went out of business in 1994,
three years after the Insurance Division initially found the business had violated state
laws concerning pre-need funeral and cemetery arrangements.

The Insurance Division acted to reduce those losses
 primarily through a court-ordered receivership which recovered $1.6 million for
consumers, and also helped to arrange for credits offered by the new owner.But not all customers were eligible for the
credits, and most who were had to make additional payments to get what they had previously
purchased.The 38-page report said its
uncertain how much the losses were reduced through the credit offers and insurance claims.

Considering the financial and emotional toll on
customers, the Ombudsman wrote that his review indicates that for at least some of
those customers, these adverse affects may have been avoidable and unnecessary.

The Insurance Division first became involved in 1990,
when it learned about possible problems with Clinton Memorials accounts involving
pre-need customers  people who had purchased, or were in the process of purchasing,
products and services before the time of need.

After a year-long investigation, the Insurance Division
in 1991 found several violations of state law.The
violations primarily involved shortages in the amount of payments in trust and the number
of products that were warehoused.The
violations didnt appear to be intentional, and while the Insurance Division could
have taken severe enforcement action, such actions in other cases tended to harm the
business, and ultimately harmed consumers.

As a result, the Insurance Division tried a new approach,
referred to as a work out.The
idea was to keep the business open with the expectation that it could make up the
shortages through continued operations, with the Insurance Division setting goals to be
met by specified deadlines.Under the
circumstances, the Ombudsman admires the Units decision to try this new approach,
with the ultimate goal of helping Clinton Memorials customers, the report
said.

The Units follow-through, however, was
inadequate, the Ombudsman added.After
finding statutory violations had already occurred, the complex and abstract nature of the
pre-need funeral industry obligated the Unit to proactively look for any further signs of
trouble.But the Unit either wasnt
looking for them or failed to appreciate their significance.

For example, while Clinton Memorial was specifically
ordered not to make any new pre-need sales from July 1991 to May 1992, it made nine new
sales in that time.While three of the sales
were contained in a report received by the Insurance Division in April 1992, there is no
indication the Insurance Division was aware of that fact a month later when it partly
reinstated Clinton Memorials license to make new sales.

In January 1993, the Insurance Division fully reinstated
Clinton Memorials license to make new sales, even though regulators initially
objected to the idea.In addition, the
Ombudsmans investigation found that Clinton Memorial had made relatively little
progress towards its goals at that time.Under
the circumstances, the decision to fully reinstate Clinton Memorials
establishment permit was unsupportable and unreasonable, the report said.Twenty six new customers ultimately lost a
total of $49,850 as a result of this decision.

In March 1993, the Insurance Division received a report
showing Clinton Memorial in 1992 received about $177,000 for pre-need contracts sold in
previous years, but put none of those monies into trust.Though the Insurance Division said that report triggered an audit which
found extensive problems, it did not act on that report for eight months, for reasons that
are unclear.Whatever the reasons, the
Units failure to respond gave Clinton Memorial another eight months to
misappropriate pre-need income and merchandise, the Ombudsman wrote.

In the end, the report said its unclear whether
Clinton Memorials trusting deficit for pre-need accounts was reduced as
a result of the work out.It adds
that of the 303 pre-need customers who made payments after the work out began,
most (278) lost money  a net loss of more than $200,000.

The report acknowledged that regulating the pre-need
funeral and cemetery industries can be complicated and time-consuming, and that the
Insurance Division does not have unlimited staff and resources.However, if there is a lesson to be learned
from the Clinton Memorial experience, it is that the Unit should not undertake any similar
work out efforts unless it can proactively look for warning signs, the
Ombudsman wrote.As this experience
showed, a work out carries the risk that aggregate consumer losses can
actually grow.Unless the Unit can ensure
that wont happen, it is not a risk worth taking.

In his response to the report, Craig Goettsch,
Superintendent of Securities for the Insurance Division, defended the agencys
performance and disputes a number of the Ombudsmans findings and conclusions.
There is no question that our work on the Clinton case was hurt by the lack of
staff, he wrote.Given the
limited staff and resources, we were able to accomplish a great deal in this case.

Frankly, the message we receive from the report is
that the safe course for the office is to take immediate licensing action against
violators of statutes, Goettsch added.The
message becomes dont exercise discretion and dont act in the public
interest as a whole.

Dennis Britson, director of the Insurance Divisions
Regulated Industries Unit, wrote, Sometimes, no matter what you try, or how hard you
try, things still dont come out well.This
aptly describes the Clinton Memorial case.It
was not one of the Bureaus success stories.We
truly regret the financial losses and emotional distress of Clinton Memorials
customers.We will proceed differently should
we ever have a similar case in the future.

However, that differs from a belief that our
decisions were unreasonable or an abuse of discretion at the time
they were made, Britson added.A copy
of the Insurance Divisions unedited reply is appended to the report.

Copies of the report can be obtained from the
Ombudsmans office, which can investigate complaints about most agencies of state and
local government.Iowans can call the office
toll-free at 1-888-IA-OMBUD (426-6283) or at (515) 281-3592.The office has a TTY which can be reached using
the toll-free number or at (515) 242-5065.Its
fax number is (515) 242-6007.Internet users
can contact the office at: Ombud@legis.state.ia.us